WAYNE O'LEARY

Rosemary's Medicare Baby

The camel's nose is under the tent. It's hard to believe, but the
Medicare program as we have known it is hanging in the balance;
unless things change, its days are numbered. While Americans were
absorbed in the botched adventure in Iraq, the best government
program in existence was seriously, perhaps fatally, undermined in
Congress by the ideologues of the Republican right and a handful of
shortsighted Democratic compromisers who abetted them.

Starting in 2010, traditional fee-for-service Medicare will be
dragged into the marketplace and forced to compete for patient
"customers" with managed-care plans offered by private insurers, a
process conservatives hope and expect will eventually lead to full
privatization. Initial demonstration projects in six metropolitan
areas have been mandated by the GOP's Medicare reform package signed
in December by a buoyant President Bush. The ground rules provide
that Medicare will have to bid competitively against subsidized HMOs
and other private health-care providers on a cost and benefit basis.

Predictions are that the private plans will successfully "cherry
pick" the youngest, wealthiest and healthiest seniors, thereby
gaining a permanent competitive advantage over traditional Medicare,
which will be left with the oldest, poorest and sickest segment of
the elderly population. This process will not only create a
two-tiered system of medical care (different premiums and benefits
for different beneficiaries), but will politically split the elder
constituency along class lines, giving affluent seniors who purchase
more expensive private policies less stake in the public system. As
the existing government program's comparative costs inevitably rise,
free-market types think, it will gradually wither away in the face of
taxpayer reluctance to support it. That, at least, is the vision of
the Bush White House, the Republican majority in Congress, and the
conservative think tanks and health-industry lobbies behind the
privatization scheme.

The camel's nose of privatization is under the tent in anothsser
respect: the much-heralded prescription-drug benefit that provided
the initial rationale for the Medicare restructuring. Seniors are,
indeed, getting a long-awaited drug benefit, but one administered by
private, profitmaking companies subsidized by the taxpayer and one
whose miserly provisions are hardly worth the accompanying threat to
the overall integrity of the system. The plan's 10-year, $400 billion
price tag includes an astonishing $100 billion in corporate welfare:
$12 billion to offset the administrative costs of insurance-company
providers and $88 billion to bribe large employers already offering
retiree drug benefits to continue doing so. (A 2002 Kaiser Family
Foundation poll says 22% of them plan to drop their retiree coverage
anyway, forcing three to four million seniors into the "voluntary"
government-funded program.)

The Medicare drug plan also guarantees the continued flow of
unlimited profits to the pharmaceutical industry by avoiding price
controls and expressly forbidding the government to engage in
cost-lowering group-purchase negotiations, as well as by virtually
banning cheaper imports from other countries. Prominently lacking in
the plan is anything comparable to Canada's Patented Medicines Prices
Review Board (PMPRB), which sets maximum prices for drugs, both at
the wholesale and retail levels. The absence of any form of cost
restriction means the drug portion of Medicare may well become the
program's financial Achilles heel, especially since the reform
legislation has placed a little-noticed cap on future Medicare
spending.

What the drug-benefit package provides for seniors is more
confusion and complexity at a time of life when most people want
simplicity. The elderly will have to choose between a variety of
competing companies offering different coverages and fee schedules,
both for the actual benefit when it is fully implemented in 2006 and
for the chintzy Medicare drug-discount cards that will be available
in the interim. Those making the wrong decisions will potentially
realize little savings or find the drugs they need are uncovered by
their chosen carrier.

The worst feature of the new, quasi-private drug benefit,
however, lies with the celebrated "hole in the doughnut." Ah, the
doughnut hole, the inexplicable gap in coverage mandated by the
hole-in-the-head Republican Congress that enacted it. As most people
have heard by now, Medicare drug coverage will be radically uneven,
paying (after $420 in annual membership premiums and an annual
deductible of $250) 75% of yearly prescription costs up to $2,250 and
95% of yearly costs over $5,100, but nothing at all (the hole) for
costs between $2,250 and $5,100.

Unfortunately, the doughnut hole impacts the prescription
expenses of nearly half the Medicare population. Families USA, the
health lobby that (unlike the co-opted and disgraced AARP) opposed
the drug legislation, estimates that the coverage gap will directly
affect two-fifths of the elderly -- some 16 million individuals --
including the heaviest users of pharmaceuticals. Hard statistics
bear this out. According to the Congressional Budget Office,
drug-related spending by Medicare beneficiaries in 2003 averaged
$2,439. This means the average senior enrolled in the pending
Medicare drug program would have fallen into the reimbursement hole
and have had to pay 56% ($1,359) of his or her prescription costs, a
far cry from the 10 or 20 percent typical of most health-insurance
plans.

Furthermore, constantly escalating retail drug prices,
uncontrolled under the American system, are projected to increase by
10% per year, meaning that same average senior will be purchasing
close to $3,000 worth of prescriptions by 2006, when the drug benefit
finally goes into effect. At that level, smack in the middle of the
doughnut hole, yearly premiums, deductibles, and co-payments will
total nearly two-thirds (64%) of annual prescription costs -- a
terrible deal for the elderly.

In reality, what President Bush and Congress, the midwives for
this Rosemary's baby of a Medicare reform, have delivered is little
more than mere catastrophic drug coverage. Barring the use of vast
amounts of drugs, say for long-term treatment of a serious chronic
illness, participants get little from the program. If they spend less
than $800 a year, they actually lose money. Under the plan as
enacted, seniors themselves bear a steadily increasing portion of
their annual prescription costs until the doughnut hole closes at
$5,100, topping out at 79%. They then gradually contribute less out
of pocket; yet, it is only when yearly drug expenses total $8,500
that their share drops below one-half, and only when total costs
reach $20,000 that it falls below one-quarter.

The best advice for seniors is this: Keep your existing
retirement drug plan, if you have one (and if you can), and cancel
your AARP membership. The erstwhile seniors' lobby was shown
throughout the legislative process to be no more than an
organizational shill for the health-insurance industry, of which it
is itself a part. CEO William Novelli, it turns out, is a former
corporate PR consultant and a good friend of Newt Gingrich, who has
always disliked government-run Medicare and whose ideas informed the
market-oriented bill finally passed. One more thing: Don't forget to
vote and register your dissatisfaction. Remember, the new Medicare
reform was designed less to offer a prescription-drug benefit than a
political benefit, one calculated to protect the slim Republican
congressional majority and provide re-election insurance for the
president.